Fannie Mae-No Politics (FNMA)

[capitalismforever]

Corporations pay estimated tax on a quarterly basis. If these estimated payments are in excess of what they owed at the end of the year, the difference between what they paid and what is owed becomes an asset. When tax policy changes, so does the value of these accounts. Because the GSE's are in conservatorship, the tax benefit that is owed to them won't be recognized until they are released. Currently, they have a deferred tax asset available to them of $33.5b. That amount was calculated based on a 32.8% effective tax rate. The book/cash difference is calculated as $33.5b divided by 32.8% = $102.13b.

If corporate taxes go to 15%, the new deferred tax asset will be $102.13b * 15% = $15.32b. The difference between the old asset value and the new produces an impairment charge of $18.18b. That means equity value will decrease by that amount.

Why this is bad for the GSE's is because an $18b write down on $6b of equity produces a deficit. Under the SPSPA agreement, any deficit has the potential of receivership, as well as a Treasury draw.

As the Bloomberg article mentions, Congress has a habit of not addressing issues until a catastrophic event occurs. It seems to be part of the remedy to releasing the GSE's involves them becoming insolvent, unfortunately.

https://www.bloomberg.com/news/articles/2017-04-21/fannie-freddie-overhaul-is-very-important-goal-mnuchin-says

"Previous legislative efforts have been difficult, in part because any changes could have large ramifications on mortgage rates and home ownership, and in part because there’s no immediate catalyst to make lawmakers focus on the issue."